House tax bill includes tobacco buyout

Earmarks $9.6b for farmers who abandon quotas

By Nancy Zuckerbrod, Associated Press | June 5, 2004

WASHINGTON -- Southern lawmakers relied on election-year politics and old-fashioned vote trading to secure a deal yesterday that would pay tobacco farmers nearly $10 billion to give up a federal quota program that has propped up their prices.

The buyout, sought for years by the growers and the politicians who represent them, was included in a corporate tax bill unveiled by Representative Bill Thomas, Republican of California and chairman of the House Ways and Means Committee.

The measure would pay $9.6 billion over five years to an estimated 400,000 owners for giving up ''allotments" that dictate how much they can grow each year.

Thomas said that his committee will act on the legislation next week and that it will probably be taken up in the full House the following week.

Keith Parrish, executive director of the National Tobacco Growers Association, predicted that up to half the nation's tobacco farmers will quit growing the crop upon a buyout. The government has been reducing the amount of tobacco farmers can sell in recent years due to declining cigarette sales and an increased reliance on less expensive imports.

Farmers have been clamoring for a buyout for years. But Republicans' narrow control of the House and Senate and the possibility that they could lose it this fall boosted its momentum.

''I think the fate of the election, at least in the South, is in large part resting on this one issue," Parrish said.

President Bush in 2000 won tobacco-growing states such as Georgia, Kentucky, North Carolina, Tennessee, and Virginia and is favored in them again this year. However, many GOP-leaning tobacco farmers have said recently they might vote for Democrats if Republican leaders don't deliver a buyout.

Representative Ron Lewis, Republican of Kentucky, said yesterday that the White House helped negotiate the inclusion of the final buyout agreement in the tax bill. White House spokesman Taylor Gross declined to address the issue, saying, ''We are reserving comment until we have reviewed the full details of the bill."

Campaigning in Ohio last month, President Bush said he didn't think a change to the tobacco program was needed. That prompted an outcry from tobacco farmers and their states' lawmakers.

Representative Richard Burr of North Carolina, a Republican who is locked in a competitive race for the Senate, said administration officials recently ''communicated very clearly" a willingness to consider signing a tobacco buyout if it met several conditions.

They included an end to all price and production controls and a limited cost that would not worsen federal deficits, Burr said.

Funds for the proposal would come from the Treasury. But Christin Tinsworth, a spokeswoman for the Ways and Means Committee, said expiring customs fees would be extended to cover the cost.

Smokers now pay a federal tax of 39 cents for each pack of 20 cigarettes. A commission appointed by former president Clinton suggested raising cigarette taxes to pay for the buyout, an idea immediately rejected by the tobacco industry and tobacco-state lawmakers.

The House proposal also does not give the Food and Drug Administration the power to regulate cigarettes, a condition that many lawmakers have put on any buyout. Burr said the White House opposed linking the two issues.

Another person close to the negotiations, who spoke on the condition of anonymity, said the White House was cool to the idea of attaching FDA regulation to the buyout, but did not make its omission a condition for administration backing.

Under the proposal, farmers who grow tobacco under their own allotments would get $10 for each pound in the quota they give up. Farmers who rent other people's quota and then grow the crop would get $3 per pound, with the allotment owners getting $7 per pound.

Thomas has been working for months at putting together a corporate tax bill that could win a majority in the House.

''At a minimum, it got him 10 Democratic votes, and probably more, which was I think what he needed to get the job done," Representative Bart Gordon, Democrat of Tennessee, said of the decision to attach the tobacco buyout to the tax bill.

The tax bill restructures corporate tax breaks in response to tariffs the European Union began imposing on US exports in March. Those tariffs were imposed after the World Trade Organization ruled that current corporate tax law illegally subsidizes the sales of American goods abroad.

A corporate tax bill passed last month by the Senate has no tobacco provision. Key senators have said they will not allow a tobacco buyout without also giving the FDA the authority to regulate the marketing and production of tobacco products.